Must a work SUV be used only for business?
... and if so, how can I prove it?
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(FORTUNE Small Business) -- Dear FSB: Must I prove that a work vehicle is used for business 100 percent of the time? And if so, how do I prove it? My question is related to Land Rover's statement about tax depreciation allowances. They claim that the first year you can claim $32,000, then $11,200, then $6,700, then $4,032 each year respectively for a total of 90 percent of the purchase price after four years. If this is true I will be purchasing ASAP! Thanks for your time!
- Michael, San Diego, Calif.
Dear Michael: Technically, you are correct. "But it truly must be a business vehicle and you must be able to prove it," says David Gorsich, a licensed tax professional in San Diego. "Most people hear about tax laws from their barber or bartender and think something like this is a silver bullet and any bozo can get rich. But it doesn't work that way."
Back in the mid-1980s, the government started restricting the amount of depreciation you could claim for luxury vehicles, describing them as "under 6,000 pounds," explains Gorsich, who teaches tax law to professionals in his series of "Brass Tax Presentations." Vehicles over that weight did not have caps on depreciation. "But back then, vehicles over 6,000 pounds were nothing but trucks," he says. "How could Congress have predicted America's fascination with SUVs? That people would need to drive a Sherman tank to go pick up two tomatoes from the market?"
So today tax laws do permit you to claim large amounts of depreciation on your luxury SUV if you really are using it for business. "But if you're using it for two to three business meetings a year, dream on!" says Gorsich. You must keep a detailed mile-by-mile log including dates, destinations and the purpose of each trip. "It's no joke," says Gorsich. "The log must be clear and defensible and it has to jibe with other business records. Because of scammers, the IRS has put into place some pretty nasty rules, so even some legitimate people still get burned because they're so busy with their work-a-day lives they haven't kept exact enough records."
You may only claim the percentage you use for business. "It doesn't have to be 100 percent," says Gorsich. "Even the guy that drives a dump truck is going to stop on his way home from work to pick up some milk." he says.
It also helps if the vehicle is specifically equipped for your company. Gorsich cites his client, a carpet layer, who does use an SUV for business. "A truck wouldn't work, because of rain and theft issues, so he uses an SUV," he says. "But he couldn't take his wife out to dinner in it if he wanted to - the passenger seat's been replaced by a tool rack."
Do you overlap your work and personal transportation? What vehicle do you use? What tips can you offer Michael about keeping a clear log? Talk back here.